Sugar bears only think they have the upper hand

After teasing bulls with a spike to 20¢ per pound, sugar prices (NYBOT:SBH14) have eroded all the way back to their July lows.

The Oct. 18 fire at the Santos Port terminal in Brazil turned out to be a one-day event. Total monthly sugar shipments for Brazil have been down by more than 10% as a result of the damage to the facility, but the market was never very worried about the world supply situation. Some sugar shipments from the damaged warehouses will restart in January. More capacity will be restored by May. A combination of other ports picking up some of the slack and a well-supplied world market has allowed sugar prices to fall back to the lows.

Atypical dryness for this time of year is a mixed blessing for the Brazilian cane industry. On the one hand, it allows mills to continue crushing the current crop, but on the other it deprives the developing new crop of much-needed moisture. In any case, despite the harvest of a 10%-larger cane crop, estimates for sugar output for the center south region – where 90% of Brazilian cane is grown – have not changed much from the 34.5-million-tonne estimates we’ve seen over the past few months.

In mid-October, a large percentage of sugar mills in India balked at the government-controlled minimum price that they must pay to farmers for cane, claiming that it is too high and that they cannot turn a profit while world sugar prices are so low. Crushing normally begins in early November, but the millers refused to start the crushing season. The protest lasted for a few weeks, but eventually the millers caved in, and the crushing season got under way.